Underpinning the business opportunity for real-time banking, and relationship-based digital lending more specifically, is a dramatic shift in the digitization and automation of nearly every aspect of consumer and business life. These changes are driving increased urgency for bank adoption of real-time financial products that meet demands for convenience and speed. In this blog post we outline four ways in which consumer demands for digital convenience are driving the real-time banking revolution.
The on-demand economy is reinvigorating and overtaking industry after industry, from hospitality and transportation to home services and grocery delivery. In financial services, widespread adoption of person-to-person payment services like Venmo are a prime recent example.
BIA/Kelsey estimates that the total U.S. addressable market for on-demand consumer services will reach $785 billion this year. With on-demand business services estimated to be equally as large of a market, it has become an opportunity too large to miss and too risky to ignore.
For banks, the instant credit decisioning and immediate account funding offered by real-time lending directly addresses on-demand expectations. With nearly half of on-demand consumers being millennials and an additional 30% aged 35-54, demand for and growth of on-demand financial services like real-time lending are set to continue for years to come.
The channel shift in banking to digital is apparent in the numbers.
Following a 45% decline in in-branch transactions since 1992, consumer visits to bank branches are estimated to decline an additional 36% in the next 5 years. These behavioral shifts are most dramatic among younger generations, with a recent bankrate.com survey reporting that nearly 20% of millennials have not set foot in a bank branch in over a year, and an additional 30% have not visited a branch in the last 6 months. Last year Bank of America’s customers accessed its mobile app on average 72 million times a week as compared to the bank seeing on average 6 million weekly visits to its physical branches - 1/12th of the activity.
With regard to small business lending more specifically, a 2015 Federal Reserve report found that while 54% of small businesses applied for financing to small banks, 20% applied for financing with online lenders - significant penetration in the short lifespan of online lending.
Banks that adopt and offer an online real-time lending solution can counter declines in in-branch bank traffic, ward-off competition from new online lending market entrants, and continue to attract and retain customers for the future.
Business is no longer a 9-5 operation. Driven in part by demands from heightened competition and more accessible and connected technology, business has become always-on and hyper-connected. Entrepreneurs are constantly facing tradeoffs in where to invest their valuable time, leading convenience and efficiency to become predominant drivers of decision making across the business.
Real-time lending is a compelling offering in this environment. It enables a business to secure a loan in minutes instead of weeks, and to initiate the application process at any time and from any place as opposed having to physically visit a branch during banking hours. This offers the convenience and time savings required to meet today’s always-on business demands.
With shifting business and economic environments, entrepreneurs are consistently presented with opportunities to pivot their business and capitalize on market conditions. In addition, for many small businesses, unforeseeable business risk can lead to tight cash flow - be it late payment by customers, the need to pay down high interest credit card debt, or inventory or equipment needing to be replaced.
Speed and agility are of utmost importance for small businesses to thrive in these rapidly changing business conditions. Real-time lending offers business owners the instant capital infusion that is often necessary to survive and take advantage of new market opportunities.
These four trends are not the only drivers of bank adoption of real-time banking Learn more in our ebook, "The Real-Time Lending Opportunity for Banks."